As the USD spins ever lower in its continuing death spiral, the gold and
silver markets were the perfect partner, matching each step in almost perfect
unison. As the USD Index pushed below the psychological support of 90,
gold prices pressed northward of the important psychological price of $400
per ounce, for the first time in 7 years. Prices were up $9.50 for the week,
and most surprisingly, excellent buying was seen in the market on any dip,
a most impressive performance. The gold market is seeing improving fundamental
physical demand, much improved financial press coverage (mostly favorable),
and seems to be moving from the hinterlands of the investment universe to
an almost, but not quite, respectable choice for the global investor concerned
with either adverse currency movements or just looking to plunge into what
is certainly a long-term secular bull market.

Gold Fields Mineral Services, probably the most respected and most followed
fundamental analyst, reported that total demand for gold rose by 5% in the
third quarter of 2003. Jewelry fabrication rose by 5%, and implied net investment
in gold jumped from only 2 tons in the third quarter of 2002 to 185 tons in
the comparable period of 2003. Producer de-hedging, their repurchase of
previously sold forward sales, reversed in this quarter and actually contributed
to supply, albeit very lightly, for the first time in 7 seven consecutive quarters.
Official sales were marginally higher, with mining output declining by .2%.

In reading the statistics above, I am struck by numerous implications for
the gold market. The first being that FINALLY, after gold has run up
some 60% off its lows, this market is now seeing material interest from the
global investor. The political tragedies of the past years were not enough,
the continuing macroeconomic maelstrom was insufficient, but finally, investors
seem to be entering the market, although late to the party. Should this investment
demand continue unabated, some 740 tons of gold per annum would be demanded,
about 1/3 of total global production.

Over the past two years, the largest buyers of gold have been the very firms
who produce it, a most ironic situation. Their purchases have far outweighed
investor interest and have been instrumental in the continuation of the long-term
secular bull trend in gold. Many analysts had grave concerns that when the
largest buyers of gold (the producers) retreated from their aggressive shopping
spree, that prices could suffer. Now we have clear evidence that the baton
has been passed from the producers to the investors, in a most smooth transition. And,
even better than that, the new breed of gold investor/speculator, as seen in
the Commitment of Trader's reports and by monitoring the recent markets,
seems to have significant "staying power", unlike days of yore.

Next, the gold market is now MOST CERTAINLY acting not as a commodity,
but as either a currency or an investment vehicle, as you choose. As
gold prices have almost precisely mirrored, in a negative correlation, the
value of the USD, it could easily now be termed a currency. And, please
note that demand for gold is now rising, even as prices have risen dramatically.
This is in direct opposition to basic economic theory that rising prices
ration demand. Now we have demand continuing to accelerate even as prices
rally, a most bullish internal market condition that screams that the gold
market could indeed go very much higher, as momentum begets greater participation
from market participants.

While I remain steadfast about the long-term bull prospects for gold, I am
becoming a bit concerned about the very short-term. My apprehension stems from
the time of the year, to the technical studies of chart patterns, and a basic
gut feeling that, perhaps, dangers are mounting to the view that prices will
simply explode skyward. In the ten year chart depicted below, gold has rallied
some 60% from its low in 1999, to make 7 year highs. Prices have moved relentlessly
higher, with only once major setback. We are now attacking very significant
technical resistance, although from a bullish perspective, the "rounded
bottom" technical formation seen in this chart is perhaps the strongest
bull formation. My sense is that perhaps a respite is needed in this market,
that perhaps a price consolidation is required before we move higher. While
I do not foresee gold prices skyrocketing at this point in time, I also do
not envision that the downside has too much room.

Another reason to believe that the pace of gold's rise may slow is evidenced
by the chart below, depicting the rise and fall of the USD over the past 10
years. As changes in the gold price have been virtually precisely determined
by currency changes, the prospects for the USD are paramount. As the USD has
fallen some 25% from its peak in 2001, the chart shows that we are now approaching
considerable technical congestion levels, and that it will most probably take
a bit of time for this market to move lower.

And, while the technical studies now indicate that perhaps gold is a bit overbought,
they are sometimes wrong. But, there also remains a nagging fear that the large
commodity funds, who now hold some 142,000 contracts (14.2 Million ounces or
about 440 tons), will simply decide that they have had a very good year, and
decide to sell to "lock in" their most respectable profits. I have
seen such actions before as the year comes to an end. End of the year profit
(or loss) taking occurs in all markets, and oftentimes the last weeks of December
can be quite "weird" and unpredictable. To this end, as uncertainties
have risen and chart patterns ask for caution, I have taken off the mantle
of a steadfast bull, and have retreated to a neutral to slightly positive posture,
but only for a few weeks. I don't know why but I just feel that the next
$20 higher in gold is going to be a most difficult battle. This opinion is
made from the comfort of my home on a Sunday morning, and market movements
in the next few weeks could alter my convictions, oftentimes quickly. Clients
of the firm, and newsletter subscribers, are welcome our offices for updates.

In the rush to bring greater accessibility to global investors, the World
Gold Council will be enabling the launch of a Exchange Traded Fund in London
on December 9th, allowing investors without commodity market knowledge or experience,
to indirectly buy physical gold. This ETF is much the same as another fund
launched months ago in Australia. This fund will be traded in USD, not in British
Pounds, and will represent the first real test of the high expectations held
for such an investment vehicle. Already, the Merrill Lynch Gold and General
Fund has announced that it plans to purchase a significant amount of this fund
when available, although the exact quantities were not made public. Please
note that the Australian version has only garnered the paltry amount of 250,000
ounces on its books so far. For those with greater interest, go to www.goldbullion.com.

On December 3rd, the Chicago Mercantile Exchange commenced trading in gold
TRAKRS, which as a very non-traditional futures contract, appears at first
to be a derivative on a derivative sponsored by Merrill Lynch. This index is
designed to track the price of gold, plus lease revenue, for a specified period
of time. It is NOT marginable for the average investor, and costs appear both
rather high and difficult to quantify. As such, over the longer-term, I do
not see it truly competing with the far more efficient futures markets, but
rather it appears to be an attempt to front run any other exchange traded gold
fund in the USA. News reports have this new futures contract trading about
5.7 million contracts ($144 Millions USD) on the very first day, but I know
of no one who participated.

The long long long awaited introduction of an Exchange Traded Fund in the
USA has run into yet another delay, as yet another lawsuit has been filed claiming
the misappropriation of "trade secrets", by Gemini Diversified
Holdings, A.K.A., Mr. Dan Ascani. Needless to say, this lawsuit will probably
have to be settled before the regulators allow the introduction of an ETF into
the US markets. Since, by my count, this is the third lawsuit that has arisen
so far, odds favor that we will see more. Hey, didn't I once mention
the words "gold" and "investment" in the same sentence
to some representative of the World Gold Council during a drunken reverie many
years ago after a yearly gold dinner in New York? Hmm..perhaps I should get
in line and sue. (Just joking)

Mr. Giacomo Panizzutti, who has been in charge of the secretariat responsible
for the existing Washington Accord, which held Central Banks to a maximum of
400 tons per annum, stated that it was likely that while this agreement will
be extended for another five years, the quantities of gold allowed to be sold
will most probably rise to a total of around 2,300 to 2,400 tons. In my opinion,
the market is thoroughly ready for such news and has discounted any moderate
increase in official sales from this sector. While this was hardly news, this
gentleman was also quoted, "I would not be surprised if they were to
abandon the restriction on gold lending". If European Central Banks do
indeed discard the restrictions on gold leasing, and perhaps scrap the prohibition
on the increasing use of gold derivatives, it would have a rather large impact
on the very structure and flavor of the gold market. After all, when the current
agreement ends in September of 2004, official gold holdings of the signatories
would still total 14,000 tons, about ½ of the total official reserves.
I suspect that Mr. Panizzutti is right.

The platinum market catapulted up $22, to fresh 23-year highs, last week as
the largest platinum producer in the world, Angloplat, announced that it was
retreating from its previously ambitious plans to increase production in the
coming years. The group dropped its production estimates by as much as a third,
taking its 2006 production to 3.4 Million ounces to 2.9 Million. This projection
was even worse than the analyst's consensus opinion. As such, platinum
prices rallied sharply as the prospects for a continuing deficit between supply
and demand stretches into the future.

As the platinum market is not the darling of investors, I would expect that
the current higher prices will indeed ration demand, and that we will see fundamentals
shifts soon occur. With this metal near $800 per ounce, it seems logical that
demand for jewelry will somewhat abate, and with platinum now FOUR times the
price of palladium, that we will see automobile manufacturers attempt to return
to greater use of the cheaper alternative. These shifts will, of course, take
some time.

With the platinum/palladium ratio now at about 4 to 1, instead of the historic
ratio of about 2 to 1, a longer term trade presents itself by buying one and
selling the other, on a spread. However, the timing of this trade is critical
and it does not appear that now is the right time. It is important to watch
this relationship, and when the market begins to move back to historical precedents,
it will time to enter. Let the market tell us when, as the ratio just keeps
getting larger in the past few months.

From the "everybody is on the same side of the boat" school, here
is the latest Bullish Consensus (as of December 2nd)

GOLD

86% from 79% on November 25th

SILVER

76% from 68%

PLATINUM

81% from 82%

The statistics above show that a very large number of analysts and newsletter
writers are bullish, a very large number indeed. There is an old cliché I
took to heart many years that firstly, almost everyone "talks" their
book, i.e. bullish if they are already long the market and already short when
they are bearish, and secondly, if that many people have already bought
(in the numbers above in re: gold, like 6 out of 7), how many are left to buy
and push prices higher? The answer is not many.

While contrarian thought works quite well at major bottoms and tops in the
market, it is only one arrow in a trader's quiver. As noted earlier,
I take the numbers above, along with the reflections in my commentary given
above, as just a caution. When attempting to forecast a market, it is essential
to weigh all the various data points and influences. In some markets, at some
times, a bullish consensus like the one above would certainly scream for a
sell, in my opinion the percentages above constitute just a small caution,
as the underlying trend for gold is so well defined and understood.

The Commitment of Traders reports, as of December 2nd, both futures and options:

GOLD

Long Speculative

Short Speculative

Long Commercial

Short Commercial

Small Long Spec

Small Short Spec

145,456

13,428

122,342

306,307

75,447

23,509

+9,040

+3,054

-2,206

+7,679

-3,105

-7,005

With prices up some $12.50 during the relevant period, the biggest buyers
were the large speculative funds adding nicely to their positions as prices
continue to rise, and the small spec shorts who finally exited their losing
positions as gold rose past the magic number of $400. And, as usual, the sellers
were the trade. Commercial Shorts added to their already large positions, and
are now short just over 952 tons of gold or, think of it this way, about 40%
of one year's entire gold production. I don't remember ever seeing
it this large. Well, maybe a long time ago.

While this could be taken as a sign of extreme caution, I do not assume so.
The historical ratios and traditional analysis of these reports just have not
worked for quite a while. The trend has been that open interest increases mightily,
prices keep rising, and commercial shorts just keep growing. That tendency
has not shown any sign of changing.

SILVER

Long Speculative

Short Speculative

Long Commercial

Short Commercial

Small Long Spec

Small Short Spec

50,512

2,741

21,276

96,231

37,184

9,999

+6,861

+973

-5,251

-460

-3,488

-2,392

As in gold, the buyers were the large spec funds and the small spec shorts "giving
up the ghost" on their short positions as prices went through the $5.50
price level. Although prices in silver largely followed gold's fortune,
there is perhaps a hidden lesson in the numbers above. Please note that commercial
longs were sellers of over 21,000 contracts. Now, let us think about when,
and why, commercial longs sell futures. The answer is that since they are
hedgers, they sell futures when they buy physicals. That means that there
is at least good, or perhaps quite good, physical demand in the silver market.
The statistics above imply that the bull case is better than most down-in-the-mud
most fundamental analysts would infer.

Since silver has followed gold religiously, I continue to look for a trading
range near-term. I would exercise caution and perhaps liquidate some of long
positions, if they feel a bit "heavy". Recommendations will follow.

GOLD RECOMMENDATIONS:
(positions and recommendations are available to clients and subscribers only)
SILVER RECOMMENDATIONS:
(positions and recommendations are available to clients and subscribers only)
PLATINUM RECOMMENDATIONS:
(positions and recommendations are available to clients and subscribers only)

A complimentary subscription to the newsletter, with specific
recommendations and positions, is available upon request for
a one-month period.

Futures Trading is for individuals willing to accept a
higher level of risk for the opportunity of greater returns. This information
is obtained from sources considered reliable, but its accuracy is not guaranteed
by Prospector Asset Management. The recommendations reflected are those of
Prospector Asset Mgmt. and are based upon circumstances it believes merit such
recommendations. It is possible that other brokers or analysts may disagree
with our opinions based upon their current commodity research or the analysis
of commodity trading advisors. Expressions of opinion are subject to change
without notice. Reproduction or rebroadcast of any portion of this information
is strictly prohibited without the written permission of Prospector Asset Mgmt.

There is a risk of loss trading futures. You should carefully
consider the risk associated with futures trading in light of your specific
financial position. Past performance is no guarantee of future performance.